Lima: Age of prosperity

Lima is enjoying a long-awaited economic boom, thanks to a lucrative new gas pipeline - but is it at the expense of environmental and social concerns? Darren Foster reports. [piece from 2004] When Peruvian President Alejandro Toledo turned on the taps of the Camisea natural gas pipeline in August, he was not only launching the country's largest-ever energy project, he was also, many Peruvians believed, turning a new page in Peru's history. "Good news for Peruvians - we're entering the gas age," read the headline in the daily newspaper La Republica when the gas began to flow, while graffiti artists spray-painted "Camisea is progress" on walls and buildings around the city. It has taken two decades for the natural gas buried deep in the Amazon jungle to arrive in Lima, Peru's capital and largest, most prosperous city. During most of that period, attempts to develop what may be South America's largest reservoir of natural gas were bogged down in political wrangling. In 1998, after continued disputes with the Peruvian government, the Royal Dutch/Shell Group, who discovered the gas fields in 1984, walked away from the project. Then, four years ago, under a consortium of international energy firms ? including Hunt Oil of Texas, Pluspetrol of Argentina, SK of South Korea and Tractebel of Belgium ? the $1.6 billion Camisea energy project began in earnest. Since then, Camisea has taken on an important role for many Peruvians as a symbol of progress. ?Camisea has become a positive example of what can be done in Peru when there is no political interference,? says economist Fritz Du Bois, managing director of the Peruvian Economics Institute, a Lima-based think tank. ?During the 80s and 90s, it was the lifeline of every two-bit demagogue in politics, who was saying, ?Let's stop imperialists from taking our gas.' Now, everyone is asking, ?Why did we wait 20 years?' ? With an estimated 13 trillion cubic feet of natural gas and 600 million barrels of condensates, the Camisea gas fields are 10 times larger than all existing reserves in Peru. Two parallel pipelines transport the gas from the wells in the lower Urubamba Valley of the Peruvian Amazon across the Andes to the coastal town of Pisco, 100 miles south of Lima. There, one pipeline leads to a processing plant for future export to Mexico and the US. The other turns north to feed Lima. For the resource-rich, but cash-poor Andean nation, Camisea promises to be an economic boon. According to the government, Peru will go from a net importer of energy to a net exporter by 2007. The country currently imports about $700 million of fuel a year. Peru will also add about 1% a year to its GDP over the 40-year life of the project and will collect some $8 billion in royalty payments during that period. However, Camisea is expected to be more than just a cash cow. ?It's a project of huge importance, not only for the effect that it will have on the GDP, but also in all the possibilities that it brings for the development of other industries,? says Javier D'Ávila, head researcher at Lima's Institute for Economic and Social Studies. ?It's going to generate an important reduction of production costs, and industries will become more competitive.? Camisea will slash energy costs in half for businesses and individuals in Lima, and electricity bills will be reduced by 20%. By replacing oil-fuels with cleaner natural gas, the project will also reduce air pollution in Lima. And in a country where close to 60% of the working-age population is underemployed, the project has directly created 14,000 jobs and will indirectly create about 55,000 more. But Camisea has also had its share of critics. Its location, in an unspoiled section of the Peruvian Amazon, ensured that exploration would be a contentious issue, and many environmentalists have argued that economics have been put ahead of environmental and social concerns. Critics have voiced concerns about the project's impact on the rainforest, the Paracas marine reserve and Peru's Indian tribes. The debate reached its height in 2003 when lobbying led by US-based Amazon Watch caused the Inter-American Development Bank (IDB) to put off its decision to contribute $135 million in loans for the pipeline. The loans were eventually approved in September 2003, but the Export-Import Bank (a credit agency of the US government) rejected a $200 million loan, citing environmental concerns. Daniel Drosdoff, IDB's communications director, says that with the bank's involvement, the project has been accompanied by pioneering social and environmental programmes in Peru. ?We have been able to leverage this minority financial contribution into creating very substantial environmental and social measures,? he says. These will include a fund to assist in economic, social and environmental development in certain areas of the project; a programme to improve the overall environmental conditions in Paracas Bay; and the upgrading of national parks and expansion of legal protection for Indian reserves. In addition, the IDB has assumed responsibility for monitoring environmental compliance for the entire project throughout the life of the loan. Whether or not Camisea's rewards outweigh the its potential risks will ultimately be decided by Peruvians, many of whom have not yet seen any tangible benefits of the country's more liberalised economic policies. Camisea's sustained high-profile public relations campaign has set high expectations. But the question remains whether the project will be able to meet them. The positive push behind Camisea has lent a much-needed boost to the president's approval rating, which at one stage had dropped as low as 6%. He remains the country's least popular president with a rating hovering around 12%, according to a recent poll in the daily newspaper El Comercio. Despite his unpopularity, Toledo has presided over an economy that has grown 4% a year and is expected to average about the same rate over the next three years. Increasing commodity prices have bolstered the economy ? metals make up half of Peru's exports ? and it has also generated investment in Peru's mining sector. That's good news, but not good enough to raise the standard of living for the half of Peruvians in poverty. For the population to feel a sense of improvement in their quality of life, Peru needs to consistently grow at 6 to 8%, much as Chile has done, Du Bois says. Camisea should add another percentage point once the gas begins to be exported, but it will take more than just this project to paint a rosy economic outlook for all ? and therein lies the importance of making sure that Camisea is a success, says D'Ávila. ?It's going to be proof that here it is possible to make large investments,? he says. ?That's much more of a qualitative assessment of the project than a quantitative one, but equally important. Especially since we're always struggling at the international level to have access to foreign capital.? President Toledo faces re-election in 2006 and Du Bois says that his opponents are likely to run a moderate, market-friendly campaign. ?It's a complete contrast to what we had three years ago,? he says. ?At that time, politicians were queuing to accuse the market economy of everything. Now it's the opposite: you have everybody queuing to say how good private investment is for the economy.? Of course, that also might hinge on what Camisea delivers between now and then. Getting there There are no direct flights from the UK. The most convenient routing is with Iberia from Heathrow via Madrid. Return fares cost £5,373 in first class, £1,860 in business class and £615 in economy.